Phil Fersht and the Horses for Sources team have put out two interesting pieces this week on the changing nature of outsourcing and shared services.
The first piece, Sourcing advisory bounces back, highlights research showing that more than half of all BPO deals are sourced with the assistance of advisors despite the general trends toward higher degrees of in-house skill in establishing and managing outsourced relationships and smaller deals. The post concludes:
However, as the deals get smaller and the role of BPO proliferates into one vehicle of many for business operations leaders, the consulting community will need to increases its broader sourcing skill-set to deal with blended shared services/BPO models, and have a great degree of process knowledge and consulting finesse to deal with complex corporate situations. There’s a reason why the likes of KMPG, McKinsey and PwC are in this space – they see the bigger picture that BPO transactional support is one arrow of many that they need in their quiver to help operations leaders with ever-increasing global needs to keep their companies competitive.
We agree completely with this. Today’s shared services practitioners need to have a broad skill-set that expands across approaches. They must be skilled at managing the delivery of services by internal staff as well as external suppliers, and the line between internal and external delivery will become increasingly gray and increasingly blurred.
The second piece, on Global Business Services (registration required), highlights a major piece of research with 325 respondents to “identify the drivers and results of organizational efforts to improve business support services”.
The findings largely accord with our observations in the Australian community where access to talent and cultural change were the key drivers for improving business support services.
The report contains six main findings which I group below into the categories of objectives/scope and governance/benefits realisation.
1. Objectives / Scope
The research found that organisations focused on cost reduction were less likely to see broader benefits such as innovation.
…despite the proven benefits of their shared services and outsourcing initiatives, most organizations only include a small proportion of their operations in their shared services or outsourcing frameworks. While close to half of organizations involve six or more business functions in their shared services or outsourcing initiatives, a bewildering 41 percent of organization’s customer service, 49 percent of their facilities management, and 58 percent of their supply chain organizations remain in decentralized in-house models. These are merely examples of how underutilized most organizations’ shared services and outsourcing initiatives have become. Organizations must overcome internal resistance to change and shift operations into shared services and outsourcing programs to achieve better performance results.
This is one of the primary reasons we built ProcessGo!. We are of the view that until you’re speaking the same language as your providers you can’t drive innovation. Using ProcessGo!, you describe your processes and your future scenarios using the simple but effective concept of a user story. The stories are easy to compare across scenarios so you can see where your new processes will differ from your current processes and the impact of the change.
The screenshot below shows an example of a process user story.
2. Governance / benefits realisation
The research found that strong, central governance was important for embedding business change within an organisation.
…the study reiterated the critical role of governance teams to manage shared services and outsourcing service provider performance, as well as the overall program to a business case. Organizations that actively manage a business are on average 26 percent more likely to generate significantly better productivity, quality, innovation and alignment with business strategy. Yet, less than half (46 percent) of governance teams have a formal business case that is reviewed on a set schedule and is formally updated as changes occur. Governance teams have significant opportunities to mature their ability to manage business cases and drive innovation and GBS frameworks provide a model to improve maturity.
At ProcessGo!, we want to make it easy to compare your progress against a business case at any time simply by creating a scenario or snapshot of where you’re at and putting it against the process.
The screenshot below shows a sample of how this looks within the application:
By being able to summarise your journey succinctly your task of describing your objectives, expanding your scope and demonstrating benefits becomes signifiantly easier.
Reprinted from the ProcessGo! blog: The importance of accurate assumptions
Carmen Nobel from the Harvard Business Review has written a review of Clayton Christensen’s book, “How will you measure your life?”. In his latest book, Christensen, best known for writing the Innovator’s Dilemma in the late 1990′s, takes recent research into organisational effectiveness and applies it to how an individual should live his or her life. I’m not sure I’ll read the book but the review brings together some of Christensen’s ideas that have resonated with me over the years.
In particular, I’ve always liked his views on the interplay between deliberate and emergent strategy and the role that the accuracy of underlying assumptions plays in determining the success of your strategy; and the book review summarises them well:
DELIBERATE VERSUS EMERGENT STRATEGY
For example, Christensen cites business scholars Henry Mintzberg and James Waters, who in 1985 published a paper defining two forms of strategies: deliberate and emergent. A deliberate strategy, they explained, is a roadmap that a company or an individual puts in place and sets out to follow. An emergent strategy involves the decision to follow a new path when opportunity knocks unexpectedly, or when an unexpected roadblock arises. In work and in life, the question is always which path to take.
To help answer that question, Christensen recommends a tool called “discovery-driven planning,” created by Ian MacMillan, a professor at the Wharton School, and Rita McGrath, a professor at Columbia. In the interest of simplicity, How Will You Measure Your Life? distills the tool to a single question: “What assumptions must prove true for this plan to work?”
Listing your assumptions about a prospective plan and assessing their plausibility can help determine the likelihood of a successful outcome, Christensen says, whether you are evaluating an executive decision or a family matter. “Whenever you implement something, if it fails, then almost invariably it did so because there was an assumption in there that, looking back on it, clearly was not plausible,” he explains.
At ProcessGo!, we are big fans of clarity and accuracy of assumptions. In fact, the reason we built our application is to make it easy for organisations to identify and understand the assumptions underlying their operational strategy and make it easy to see the implications of choosing one path over another.
Maybe down the track we’ll apply our approach to your personal life, but for now, we recommend just using it in your business!
Like the old real estate saying that property is all about location, location, location; business process transformation is all about leadership, leadership, leadership.
Leading a transformation project, like all leadership, requires singleness of purpose and clarity of vision. Singleness of purpose is typically present because your CEO has decreed it. Clarity of vision, however, is not so straightforward: it requires an understanding of your current work practices, a roadmap showing where you want to go, and the defensible expectation that it will be worth the pain of getting there.
I believe clarity of vision requires you to:
- Clearly establish the scope,
- Clearly set out the options, and
- Clearly articulate the benefits.
I like to put all this up front on the first screen. Here is is an example of how to display it:
The screenshot above shows the Process Dashboard for a financial services company.
- Clearly establish the scope: They are looking at transforming their Mortgage Processing, P2P (Procure to Pay) operations and their IT Service Desk (Red Arrow 1).
- Clearly set out the options: The list to the right (Orange Arrow 2) shows the baseline costs for the Service Desk process as well as two options: a) Optimising the service desk for self service and b) moving their first level support function to a low cost country.
- Clearly articulate the benefits: The bubble chart at the bottom right (Purple Arrow 3) graphically shows the two options and clearly shows that the first option (Optimise for self service) delivers greater annual savings (y-axis), has a greater Net Present Value (x-axis), and lower project costs (bubble size). In addition to displaying the financial benefits, clicking the “Recommendations” button will show the soft benefits of pursuing your recommended approach.
With this information, they can say:
“We are optimising our service desk as one of our three key transformation initiatives. We looked at moving our operations to a low cost location but have decided instead to implement software that allows our staff to resolve their own queries. Doing so will save the organisation $3.9M over the next 5 years and will cost $360K to implement.”
With this information, you can provide your team with the clarity they need to succeed in your transformation projects.
Today’s topic is Telling stories in data: Using data to support your arguments
Yesterday, I attended the first Australian IACCM meeting of the year. The two presenters spoke on very different topics, “Clean energy laws and carbon trading” and “Utilities Benchmarking” but both presenters were equally adept at using data to underpin their arguments. Today, data is everywhere and an effective business person must be an expert in presenting their arguments using data. In my view, there’s nothing like a story to make your audience feel that change can happen and a vision can be achieved.
Storytelling in Data
Let’s look at some Pitchmap data to show how data can be used to tell a story. This data compares the procurement processes of three companies (Salamander Logistics, Melbourne Transport and Queensland Trucking) with each other and with an optimised process. The columns in the chart show the cost per transaction: the higher the column the greater the cost per transaction. The type of transaction is shown by the label above the columns.
The first story in the above data is indicated by the red arrow. It shows that Melbourne Transport is spending about the right amount on Vendor Creation processes whereas the other two companies, Salamander and Queensland, appear to be under-investing. This does not say that Melbourne Transport is doing it right, just that they are spending about the right amount on it.
The second story is indicated by the yellow arrow. The story within the data is that Melbourne is better than its peers but higher priced than optimal. Interestingly, the purple section of the column (transaction costs relating to invoice processing) is the same as the optimised process but the green section of the column (transaction costs relating to placing orders) is significantly more expensive. This indicates that Melbourne Transport should be focusing its process improvement initiatives on order placement rather than invoice processing.
The last story is highlighted by the blue arrow. Melbourne Transport and its peers are significantly more expensive than the optimised process. This should serve as a red flag in any attempt to re-engineer this process given that no one is doing it particularly well. It may well be that there is some aspect of expense processing such as regulatory requirements in this industry or geography that adds to the cost of the process and further investigation should be undertaken to ascertain whether this is so.
The keys to successful storytelling
The keys to being able to tell stories with data are four-fold:
- The data must be clearly displayed – preferably on one page,
- The data must show where you are now and where you could be (either by reference to an optimal state or comparison against your peers or benchmarks or all three),
- The data must be sufficiently detailed to make the story interesting, and
- You need to be able to dive into the details underlying the data when your assumptions are questioned.
Doing so will enable you to present a compelling picture (as in the chart above) of what needs to be changed, how it needs to be changed, and what further inquiries need to be undertaken to resolve outstanding questions.
The Cost Reduction Tip
In the 1970s and 80′s, skateboarding went through a renaissance. Difficult tricks became commonplace and impossible tricks became possible. The invention of polyurethane wheels in 1972 and the US drought in 1976 (which led to the draining of concrete pools) kicked off these advances but it was not until groups of skaters such as the Z-Boys began challenging each other to innovate that we saw an explosion of new tricks.
A good example is the Ollie. Within days of Alan Gelfand’s arrival in California in 1976, the Ollie became a standard part of every skateboarders repertoire. The Ollie is a trick performed off a vertical wall (such as a swimming pool wall) where the skateboard sticks to the rider’s feet as he or she flys above the lip of the wall.
Every half-decent skater can do the Ollie but it’s not until you’ve seen it that you even realize it can be done.
We’re at this same stage with enterprise software. New entrants into the enterprise software space are performing impossible feats. Some of these new tricks such as SAAS delivery require new technology but many tricks simply require you and your existing vendors to re-conceive your service requirements and their service offering. This can both improve your vendor’s capabilities and significantly reduce your costs.
The Cost Reduction Tip
Certain problems when you first look at them seem intractable. But once you understand their natural fracture lines, breaking them up and solving them is actually quite easy. Most business process problems fall into this category and cost reduction problems are no exception.
The natural fracture line for cost reduction opportunities are people and COGS. It’s easy to get lost in arguments about what is and what is not included in COGS so it’s best to simply think of COGS as costs that do not vary with the number of staff you have. In fact, I’ll call these non-People costs in this and subsequent posts. For example, desktop support costs are driven by People costs whilst marketing expenses are driven by non-People costs. Certain expenses can fall into both or either category such as data centre costs where your data centres support both your intranet and internet sites. For these, you can split them by percentage or just lump the entire expense into the biggest driver – People or non-People
Identifying your cost reduction opportunities then is just a matter of categorising each expense line in your management accounts as being driven by People or non-People. Tackle the former by considering how you can deliver the same value with fewer people and the latter by identifying the drivers of that cost and looking at ways of minimising it.
Sound simple. It is.
The Cost Reduction Tip
When looking at cost reduction opportunities in an area, you should start by assuming that you can remove 100% of the cost. If that’s not possible, then look at ways to remove 90% of the cost. If you don’t start ambitiously, you’ll miss some real plum cost reduction opportunities.
Internal IT hardware logistics are a good example. You may have staff engaged in building and deploying hardware on site. Instead of looking at how you can improve the process, first ask yourself: Why are we doing this at all? Why can’t we get our vendor to build the hardware and ship it straight to our user’s desks. If the user can’t plug it into the network themselves then give them a help desk number to call for assistance.
Speaking of help desks, the internet provides countless opportunities to reduce your cost of service by an order of magnitude. Multi-million dollar help desk ticketing systems from BMC Software and others can be largely replaced with SAAS (or ‘cloud’ in the newest lingo) providers such as Assistly. Now, before you start defending the functionality of Remedy (BMC’s product) sit back and imagine a world where Assistly was the only option: What changes would you need to make to your processes and people? How much would you save and what would your end users have to give up? My bet is that you could deliver an equivalent service to your end users (perhaps better?) and cut your costs by 90%.
Unless you dream big, and act on those dreams, you’ll never realise dramatic cost reductions.
The Cost Reduction Tip
In the Eric Carle children’s story, The Mixed Up Chameleon, a chameleon attempts to become the perfect animal by adopting the best parts of different animals e.g. an elephant’s trunk, a giraffe’s long neck etc. At the end of the book, he’s so mixed up that he cannot catch flies for dinner.
As obvious as it is that an animal has evolved to work well only as a whole, when companies outsource their back office operations, they often try to keep favoured parts of their current operations. For example, they may outsource payments but keep their approval processes or outsource claims but keep their task management system. This inevitably increases costs and regularly leads to the failure of the entire outsourcing project.
Clients aren’t wholly to blame here. Often outsourcing vendors, to close a sale, will pander to the requests of their clients to create a mixed-up chameleon and not properly recommend that they implement the complete chameleon.
If you are going to outsource a function at the lowest cost with the least change management then you need to find a vendor with a process that you can adopt completely. Don’t select a vendor based on some other criteria (e.g. they are the market-leader) and ask them to implement only parts of their process. If you cannot find a vendor whose process you can adopt completely then don’t outsource the function.
The Cost Reduction Tip
The success rate of software implementations is woefully low. There are lots of reasons for it ranging from overselling by vendors, overspecing by customers, lack of consultation with stakeholders, under-resourcing the implementation team, etc. But in my view, much of the source of failure comes from unnecessarily bundling high risk process change with the software implementation.
For example, if you are implementing a new payment system that changes your approval hierarchy then look for a way to implement the new approval hierarchy before you implement the software. If you are implementing a new public transport ticketing system, change the fares before you implement the system.
If you can unbundle your high risk process changes from the software implementation then you’ll improve your software implementation success rate – at the very least you’ll discover you have an insurmountable change management program before you spend any money!
The Cost Reduction Tip
Over the past 12 years I’ve looked at the sourcing, procurement and payments processes in 150+ companies spanning every continent except Antarctica. At a detail level, the best of these companies took very different approaches to managing their suppliers – approaches tailored to the subtleties of their industry, geography and economic climate. But the best shared one common trait: Their supply chains were as simple as possible given the constraints of their operating environment. That’s not to say they weren’t sophisticated – often they were (in a surprising number of cases they were not) – but they were all simple.
Commonly, but not universally, the best companies regularly tendered categories that didn’t matter much. Commonly, but not universally, they would set up longer term relationships (with both parties incentivised to meet a common goal) in the categories that were critical to their ability to deliver value. In all categories, their sourcing, ordering and payment processes were as invisible as possible.
Many of the best companies did not even view their supply chains as strategic. In their drive to reduce costs, keep their operations as simple as possible and eliminate bureaucracy they just ended up with an efficient supply chain.